SinoPac told Citigroup is to back SIVs

RELIEF The bank's pledge on the losses incurred by the local lender on its purchase of SIVs is seen as a sign that the situation is not as dire as it appeared

By Kevin Chen / STAFF REPORTER , WITH BLOOMBERG

Citigroup Inc has assured SinoPac Financial Holdings Co (永豐金控), the nation's 11th-biggest lender by market value and the one with the most structured investment vehicles (SIV) holdings, that it will support the products it sold to the company, a SinoPac executive said.

The pledge was made in a Citigroup letter to SinoPac, which has bought 60 percent of its SIV investments from the US bank, SinoPac executive vice president Richard Chang (張立荃) said in a telephone interview yesterday.

"In its letter, Citigroup said its top management would pay the highest attention to the SIV investments and do its best to support it and provide liquidity,'' Chang said. ``It's a relief to us, for Citigroup wouldn't have said that if it feels the situation isn't under control. Overall losses will be limited.''

Banks and hedge funds set up SIVs to issue short-term debt and invest in longer-term assets such as bank loans and mortgage-backed securities, which have dropped amid losses on subprime loans in the US.

Losses on SIVs have renewed concerns that the fallout from record US mortgage defaults will spread.

"It's still hard to say such a promise from Citigroup won't result in further losses for SinoPac," said Charles Chen (陳敏智), who helps manage US$3.7 billion at JF Asset Management Co (怡富投信) in Taipei.

"But as the size of SinoPac's SIV investment isn't that great, even if it reports more losses, the damage is still manageable," he said.

To revive the asset-backed commercial paper market and prevent SIVs from dumping their US$320 billion in assets at fire sale prices, US Treasury Secretary Henry Paulson and three banks have agreed to set up an US$80 billion fund to absorb some of the debt.

SinoPac Financial on Monday posted a NT$205 million (US$6.35 million) profit in the third quarter -- a drop of 89.14 percent from NT$1.887 billion a year ago -- after the company wrote down nearly NT$1.5 billion on investments linked to the US subprime mortgage products.

The third-quarter profit was also down 91.39 percent from the NT$2.38 billion reported in the previous quarter, the company's latest balance sheet showed.

For the first three quarters ended in September, SinoPac Financial reported a NT$4.623 billion profit, or NT$0.66 earnings per share (EPS), the company said in a conference call on Monday.

Brokerage and wealth management businesses remained the company's main earnings generators in the first three quarters, SinoPac Financial said in a report on its Web site, with brokerage profits growing 188 percent year-on-year and wealth management earnings increasing 69 percent.

The asset writedown, however, has dented the company's earnings by NT$0.03 per share as the company reported an EPS of NT$0.63 for the first half of this year.

The company maintained it would book a NT$2.36 billion charge for the third quarter to reflect losses on its banking unit's US$350 million investments in SIVs, which account for about 5 percent of its foreign exchange holdings, Chang said.

The company will also write down US$3 million on its US$38 million investments in collateralized debt obligations for the third quarter, the report said.